CFTC keeps prediction market trading despite lawsuit

TLDR

The US derivatives regulator has used emergency powers to keep prediction market platform Kalshi trading even while New York sues it for allegedly running illegal gambling markets.

1. The CFTC ordered Kalshi to continue operating nationwide, arguing its event contracts are federally regulated derivatives, while New York seeks a restraining order and over $36 billion in damages.
2. This escalates a fight over whether sports and crypto prediction markets are swaps under federal law or unlicensed gambling under state rules, with knock-on effects for platforms like Polymarket.
3. Crypto users should watch court decisions and new CFTC rules on event contracts, which will determine how easily US traders can access regulated prediction and crypto-linked markets.

Deep Dive

1. Emergency Order And New Yorks Case

In mid August, the Commodity Futures Trading Commission (CFTC) used emergency authority under the Commodity Exchange Act to order KalshiEX to keep operating after New York moves to halt its markets.

New York Attorney General Letitia James sued Kalshi on 31 July, alleging it runs unlicensed gambling through sports, elections and culture contracts, and seeking a nationwide restraining order plus damages calculated at more than $36 billion based on a 51 percent sports betting tax rate. The CFTC responded that forcing Kalshi to unwind positions and stop trading would create a market emergency and disrupt a federally regulated derivatives exchange, so it directed the platform to continue offering event contracts despite the lawsuit.

The order is temporary relief. It keeps trading live but does not resolve whether New York can ultimately shut down or heavily fine the platform.

2. Federal Versus State Control

CFTC chair Michael Selig has argued that prediction markets on Kalshi are swaps traded on a federally registered exchange and that New York has no business regulating these interstate financial markets, as summarized in a turf war overview.

Several states, including Arizona, Connecticut, Kentucky, Minnesota and New York, say these contracts are simply sports betting that must follow state gambling laws. Courts have split: a Connecticut judge recently held that Kalshis sports contracts are not swaps, while other decisions have partially sided with federal jurisdiction. The CFTC has now sued or challenged nine states to defend its preemption claim.

For crypto, the classification matters because some event contracts explicitly reference Bitcoin, Ethereum or macro data that move crypto. If such markets are treated as gambling, they may be forced into licensed sportsbook channels or offshore venues.

3. Why Crypto Users Should Care

Kalshis growth and the CFTCs actions show prediction markets are becoming part of mainstream market infrastructure, with sports, macro and crypto contracts all trading at scale. The platform has also expanded feeds for sports and crypto perpetual event data, as reported in a new data feed launch.

At the same time, the CFTC is tightening oversight, warning prediction platforms that aggressive incentive programs for high volume or market makers can encourage wash trading and manipulation, in new guidance covered by policy reporting. Together, this suggests a future where US regulated prediction markets exist but face stricter rules on integrity and clearer lines with state gambling law.

Conclusion

By invoking emergency powers, the CFTC has kept Kalshis prediction markets open during a high stakes legal showdown, but the core question of whether these platforms are derivatives exchanges or gambling businesses is still unresolved.

The eventual outcome will shape whether crypto-linked event markets operate under a single federal framework or a patchwork of state rules, which in turn affects where liquidity, innovation and user access concentrate in the next phase of crypto and prediction market development.